Quick Definition

A repurchase agreement (repo) is a short-term borrowing for dealers in government securities, where the dealer sells the securities to investors with an agreement to repurchase them at a higher price on a future date.

Examples

• 1A government securities dealer needs to raise quick cash for a short period and sells U.S. Treasury bonds to a money market fund under a repo agreement, agreeing to buy them back the next day at a slightly higher price.
• 2A central bank conducts repo operations to manage liquidity in the financial system, offering repos to control the money supply and influence interest rates.
• 3Investment banks use repos to manage their short-term liquidity needs, borrowing cash from other financial institutions using their securities as collateral.

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